MUMBAI, NOV 8: India's largest commercial bank plans to launch a gold deposit scheme next week as part of official efforts to flush out privately held gold and cut imports, a senior bank official said on Monday.State Bank of India (SBI) will launch the scheme in New Delhi on November 15 and target it at households, temples and trusts, the official told Reuters.The scheme, approved by the central bank, will be the first time any Indian commercial bank has collected gold at its branches and issued interest-bearing certificates against it. It follows the central bank's move last month to allow banks to set their own interest rates on fixed-term gold deposits.The bank official, who declined to be identified, said SBI would pay between three and four per cent interest on term deposits of between three and seven years. "The interest rates offered compare favourably with rates offered internationally on gold," the source said.At least five state-run banks and some foreign banks have shown interest in undertaking gold banking in the country. The gold deposit scheme was announced by Finance Minister Yashwant Sinha in his 1999/2000 (April/March) budget speech in February and was aimed at drawing out a part of the country's vast hoard of gold and reduce India's dependence on imports.India is the world's largest gold consumer and meets almost all its requirements from imports. It officially imported 614 tonnes of gold worth $5.8 billion in calendar 1998, according to the industry-funded World Gold Council.SBI will announce a minimum lock-in period of one year on the gold deposits and the minimum amount accepted will be 200 grams. "The scheme will be initially targeted at high net-worth individuals and families. We have fixed the minimum deposit at 200 grams so that a large number of people can opt for the scheme," the official said."The certificates that will be offered will allow premature encashment in gold. The deposit holders will be able to borrow in rupees against the certificates, transfer it by endorsement and delivery and above all, there will be no capital gains tax, wealth tax and income tax on these deposits."India has accumulated 10,000 tonnes of gold in private hands over generations. "The idea is to convert gold into a financial product - one that earns returns while at the same time, there is freedom from fear. In the process, this will reduce the country's imports and conserve foreign exchange," the official said.The gold collected under the scheme will be on-lent to jewellers in metal form and the rates will be lower than the normal financing costs, the official added."Today, the normal costs of raising funds for jewellers is 15 per cent. Under this scheme, they can raise funds at 10 per cent. Besides, when they borrow in metal form, they have an automatic hedge against any price fluctuation," the official said.
